Unless you’re retired or unable to work, there aren’t many reasons why you need to generate large income today. If you’re working then you don’t need good investment income next month or even next year. Instead, you need it in five years, ten years or perhaps twenty years depending how far away retirement is for you. When you think about it in those terms, it’s much easier to invest in businesses that might be paying out good income in a decade, even if the payout is low now. If you can take that long-term approach to future dividend…
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Unless you’re retired or unable to work, there aren’t many reasons why you need to generate large income today.
If you’re working then you don’t need good investment income next month or even next year. Instead, you need it in five years, ten years or perhaps twenty years depending how far away retirement is for you.
When you think about it in those terms, it’s much easier to invest in businesses that might be paying out good income in a decade, even if the payout is low now.
If you can take that long-term approach to future dividend investing, here are three ideas:
WAM Global Limited (ASX: WGB)
WAM Global is the newest listed investment company (LIC) to be launched by Wilson Asset Management, indeed it hit the ASX boards today.
This LIC is going to be focusing on international shares that are listed on other exchanges other than the ASX. With such a large selection of global stocks to choose from, I can see WAM Global doing well with the same investment process as the other WAM LICs.
It has only just listed, so it has no profit reserve and therefore nothing to pay dividends with yet. However I imagine in the medium-term it will grow to have a large yield and hopefully generate market-beating returns after fees.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is one of the oldest companies in Australia, it has been going for over a century. It’s an investment conglomerate that takes major stakes in businesses like TPG Telecom Ltd (ASX: TPM) and Brickworks Limited (ASX: BKW) where it sees long-term value.
It currently has a grossed-up dividend yield of 3.9%. This isn’t very high, however it has increased its dividend over the past 15 years at a compound annual growth rate of 9.4% per annum. In another decade the dividend could be substantially higher.
WAM Microcap Limited (ASX: WMI)
WAM Microcap is another WAM LIC, except this one focuses on the small end of the Australian share market. It looks at businesses that have a market capitalisation of below $300 million at the time of acquisition.
It’s only a year old but it has already generated an impressive return and therefore has the profit reserve to start paying dividends. Although small caps are volatile, WAM Microcap is a decent bet over the next decade to produce good returns and pay out a lot of that return as a growing dividend.
It currently has a projected grossed-up dividend yield for FY18 of 4%.
I hope that in five or ten years time that all three will paying significantly higher dividends. Soul Patts is definitely the most defensive of the three, but it may have a slower growth rate compared to the other two.
WAM Microcap could be volatile, but WAM Global could be the best one to own because of how many different investment options it has.
An even better dividend star of the future could be this exciting business that just increased its dividend by more than 25% and is expanding into Asia.
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Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended TPG Telecom Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.